Scenario. Matrix Engineering has been in business for 12 years and is a leader in the design and manufacture of widgets. They have 5000 employees and are located in multiple locations around the country. They have a fully insured health plan and have become very concerned about the rising cost of their benefits. Mike Johnson, the VP of HR has suggested that Matrix converts from a fully funded plan to a self-insured plan. In an attempt to help Mike sell the concept to senior management, you must respond to each of the following questions.

Part A

Some say that by self-insuring your benefits, you can save a great deal of money. List and discuss three ways that self-insuring could help Matrix reduce their health care costs?

Part B

One of the concerns expressed by management is if there were very large claims in any given year, it might be difficult for Matrix to handle them out of general assets, and therefore it is better to have a fully insured plan. How would you counter that argument? (10 points)